Workers in the Indian IT industry won the highest average salary increases in the Asia-Pacific region for 2003, according to an annual Asia-Pacific salary survey by Hewitt Associates Inc. Wages rose 14 per cent in the IT-enabled services industry.

Workers in the Philippines, South Korea and China saw pay hikes that were roughly half of that. Salaries in Singapore rose, on average, between 2.1 and 2.4 per cent. American salaries rose 3.3 to 3.5 per cent, the lowest growth ever reported by Hewitt.

The increases in India come as little surprise, with that country’s status as the leading offshore outsourcing destination. In its 2003 annual report, Bangalore-based Wipro Technologies acknowledged that wage increases “may prevent us from sustaining this competitive advantage and may reduce our profit margins.”

The pay hikes may not stem the flow of U.S. IT work offshore, but “it does motivate CIOs to examine their options,” and potentially weigh the risks and rewards of contracts in other countries, says Atul Vashistha, chairman and CEO of offshore consultancy NeoIT.com Inc.

Some already have. “India’s wage inflation is one reason that companies are diversifying into Eastern Europe, China and so forth,” says Dean Davison, vice-president at Meta Group Inc.

Doug F. Busch, vice-president and CIO of Intel Corp., says companies must take a long view of outsourcing, since relative labour costs can change rapidly. “Making strategic commitments based on small cost differences is generally a mistake, since it is likely to produce high transition costs,” he adds.

Vashistha expects the wage increases to continue for the next several years. What’s next — an Indian labor shortage?

“Not likely,” says Davison. “There are just too many people in India.”